Sri Trang

Sri Trang: Announced 2Q11 results which were below expectations.
Rev at Baht 35.3b, +64.6% yoy and -4% qoq, while Net Profit at Baht 258.4m, -79.8% yoy and -85.1% qoq. Gross profit margin plunged to 4.2% from 7.6% yoy and 7.7% qoq.

Rev was lead by sales growth, which saw sales vol +11% yoy and -6.8% qoq, while ASP + 48.4% yoy. Sales was slower qoq due to credit tightening effect, to prevent overheating economy in PRC. Gross margins slumped due largely to sluggish demand from the PRC and grp recognized allowances for inventory due to downward movement of natural rubber price in 2Q.

Operating margin slumped to 1.0%, from 6.1% yoy due largely to an increase in Cess rate from from Baht 1.40 to Baht 5.0 / kg, lower gain from FX and unrealised loss from mark forward derivatives and rubber futures of Baht 270.2m yoy and 33.9% qoq.
Going forward, grp tips rev growth to be higher than the overall growth of Natural Rubber demand due to grp’s continuance of capacity expansion in midstream and downstream products both in Thailand and Indonesia. At current price, valuations are undemanding, with grp trading at annualized 8.0x FY11E P/E.